Interest Rates and Bond Valuation Worksheet

Part I: Go to the Federal Reserves Web site to examine historical monthly interest rates on 10-year government bonds at 

 http://www.federalreserve.gov/datadownload/Output.aspx?rel=H15&series=0809abf197c17f1ff0b2180fe7015cc3&lastObs=&from=&to=&filetype=csv&label=include&layout=seriescolumn 

and answer the following questions:

A. What was the nominal rate on 10-year U.S. Treasury bonds at each of the following

dates:

1. At 04/1954: __2.29___ 

2. At 09/1976: __7.59___ 

3. At 09/1981: ___15.32_____ 

4. For the 

 Latest Month: ___2.17 August_____ 

B. Assume that a $1000 U.S. Treasury bond was purchased at par on each of first three

dates above. Also assume that for each of the three bonds the reported nominal rate

that you found above was the coupon rate at issuance.

Note:

The below answer is based on my interpretation of the problem. It states that the nominal rate will be the coupon rate. Therefore, the below will be used as the coupon rate for this section of the problem.

Problem is stating coupon rate is the same as the 10 year nominal rate

1. At 04/1954: __2.29___ 

2. At 09/1976: __7.59___ 

3. At 09/1981: ___15.32_____ 

Assuming semi-annual coupon payments, calculate the value of each bond after 5

years based on the then 5-year nominal rates on U.S. Treasuries available at

http://www.federalreserve.gov/releases/h15/data.htm

to determine the gain or loss on each of the three bonds after 5 years?

Note: Below is the 5 year nominal rate for treasury bills. It is my intrepreation of the problem that you want this used as the nominal rate.

Five year nominal rate is

1. At 04/1954: __1.87___ 

2. At 09/1976: __7.13___ 

3. At 09/1981: ___15.93_____ 

 1. At 04/1959: ________ 

 2. At 09/1981: ________ 

 3. At 09/1986: ________ 

 Which bond would you have preferred to purchase? 

 04/1954? ________ 

 09/1976? ________ 

 09/1981? ________ 

Why?